This originally appeared in Raging Chicken Press on October 21, 2013. It is a fairly long article detailing changes in PASSHE policies regarding new buildings and capital projects. I am including Part 1 of the article here with brief excerpts from other parts. To read the complete article, click “READ THE FULL ARTICLE” at the bottom of the post or go to the original right now by CLICKING HERE.

This past July, eight of the fourteen PA State System of Higher Education (PASSHE) universities sent letters to their faculty and staff warning of the possibility of deep cuts, layoffs, and program elimination (what they like to call “retrenchment”). University presidents at California, Cheney, Clarion, Edinboro, East Stroudsburg, Kutztown, Mansfield, and Slippery Rock all shouted “crisis” and warned that unless they resorted to strict austerity measures, the end, would indeed, be near.

To say it’s been an “interesting” start of the academic year for the 100,000+ students and 6,000+ faculty and coaches at PASSHE universities is an understatement. Left hanging in the balance are people’s current and future livelihoods. As I recently wrote on Raging Chicken, PASSHE’s mantra is that faculty and staff salaries and, more recently, a decline in enrollment are the reasons for the deep budget shortfalls. However, despite their continued proclamations, the numbers have never added up. My most recent post on PASSHE’s budget deceptions, “PASSHE’s Austerity Magic: Save Your Despair for Better Days,” highlighted the significant increases in spending on capital projects – buildings – at Kutztown University. As I suggested in that article, the pattern at Kutztown is not limited to that PASSHE university. In fact, it points to a much more widespread practice that has gone virtually unnoticed until the recent ouster of California University of Pennsylvania president, Angelo Armenti, Jr. (more on that in a little bit).

The budget “crisis” at PASSHE universities has its roots in a long-term defunding of public higher education in PA, Wall-Street-esque risky investment schemes, and a virtual lack of oversight.

Part I: How (Not) to Fund the College Experience

Pennsylvania vies for the top spot when it comes to the size and cost of its state legislature. PA also has the lowest percentage of public workers in the United States. In the best of times, that scenario might lead to excellent representation and efficient government. More recently, however, it has meant a right-wing Republican Party intent on destroying the public sector and a shrinking number of public employees to handle the work of cleaning up their messes. Anyone paying attention to what’s happened in PA since the 2010 mid-term elections, knows the story all too well. Newly elected governor, Tom Corbett, put public education – K-12 and higher ed – on the chopping block from day one. In his first year as Governor, K-12 schools were cut by $1 billion; PASSHE universities were cut by 20%. The trend has continued. There is no doubt that Corbett’s shock doctrine policies for public education have hit PASSHE universities hard. However, Corbett’s cuts were really a more extreme version of what had been happening for decades. In 1983-84 State appropriations accounted for almost 65% of PASSHE’s budget, while tuition and fees amounted to just over 35%. In 2011-12, State appropriations amounted to just over 25% of PASSHE’s budget, with tuition and fees reaching nearly 75%.

This belief that the “free market” will always do better than the government at any task has increased over the years until each president since Reagan has taken it as a given.

Even Bill Clinton pushed to shrink the federal employee workforce by “outsourcing” the work to supposedly cheaper contract workers to save money during his “reinventing government” effort. This craze to outsource as much of the federal government as possible hit its height during the second Bush administration. Saving money was always the reason given, but there was very little actual proof that this was true.

The situation in Pennsylvania was no different. Over the past three decades, Pennsylvania state legislators of both political parties slowly abandoned investments in public higher education as a public good. Instead, higher education became a “service” or a “commodity” that students – now “customers” – bought. Politicians and policy makers from both political parties gradually, but decidedly, drank the free market Kool-Aid instead of reenergizing efforts to invest in Pennsylvania’s State System of Higher Education.

While the steady decline in State appropriations significantly contributed to the current “budget crises” at several PASSHE universities, several under-the-radar policy changes at the top-levels of PASSHE’s administration during the last decade have continued to drain the universities’ already diminished “Education and General Fund,” or “E&G” budgets. One of the most devastating came during the tenure of former PA Governor, Ed Rendell. Yes, the Democrat.

Part II: Of Bonds and Balance Sheets (Down the Rabbit Hole)

Until 2000, PASSHE had a fairly centralized process for initiating new building projects on any of its 14 universities and the official guidelines were pretty murky. The one Board of Governor’s policy that addresses planning for new buildings (Policy 1995-01-A), “Facilities Projects Contract Compliance Program” had more to do with ensuring compliance with Act 188’s Nondiscrimination Policy (Section 20-2014-A) with respect to the awarding of state contracts, than it did with laying out a process for making decisions about where to build and why. Under Section E, “Program Administration Responsibilities,” Policy 1995-01-A stated:

The Chancellor of his/her designee shall serve at the program authority to administer a System-wide uniform Contract Compliance Program. Each university president shall be responsible to the Chancellor for implementation of the Nondiscrimination and Equal Employment Opportunity Program at his/her institution. The president may designate and delegate responsibility to a qualified contract compliance officer and other staff as necessary to implement the program.

There is not a single mention of how the Chancellor, Board of Governors, or anyone else for that matter, decides when new buildings need to be built. The one thing this old policy does establish is a centralized process of communication and compliance. That is, it is clear that the Chancellor’s office is where the authority initiates. Administrators at each PASSHE university comply with “orders” issued by the Chancellor’s office.

Policy 1995-01-A was “repealed by the action of Board of Governors on July 13, 2000 and replaced with Board Policy 2000-02, “Capital Facilities, Planning, Programming, and Funding,” on that same date. Board Policy 2000-02 is much more extensive; it lays out the process for making decisions about new buildings. Three parts of the new policy are significant for my purposes here.

3. Finance New Building from University Education and General Funds …

Keep in mind that under the current PASSHE Board of Governor’s policy 50% of the funds for new building projects have to come from “alternative funds,” primarily funds raised from external sources. In the post-collapse environment, those “alternative funds” were hard to come by, but the bills were still coming in and universities had to find ways to pay “bond expenses including fees, debt service, and principal” that they had agreed to pay at the beginning of the process. So, universities are forced to dip into their financial reserves and E&G funds to make their bond payments – funds that should have been used for educational purposes.

So, naturally, PASSHE’s Board of Governors stopped approving new building projects in the post-collapse environment, right? I mean it would be irresponsible to issue additional debt for universities who were now struggling to make their existing bond payments, right? Wrong.

Check out this table compiled by the faculty union, APSCUF, based on PASSHE’s 2008-2012 audited financial statements. The top part of the table shows new capital purchases – that is, new buildings and the like – for each of the 14 PASSHE universities over those years. The bottom part of the table shows the interest and/or principle payments toward each of the universities’ debt for those same years.

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Part IV: Smoke and Mirrors Budgeting: There’s More than One Way to Sink a Ship

Enron Corporation …was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 20,000 staff and was one of the world’s major electricity, natural gas, communications, and pulp and paper companies, with claimed revenues of nearly $101 billion during 2000.[1]Fortune named Enron “America’s Most Innovative Company” for six consecutive years.

At the end of 2001, it was revealed that its reported financial condition was sustained substantially by an institutionalized, systematic, and creatively planned accounting fraud, known since as the Enron scandal. Enron has since become a well-known example of willful corporate fraud and corruption. The scandal also brought into question the accounting practices and activities of many corporations in the United States and was a factor in the creation of the Sarbanes–Oxley Act of 2002. The scandal also affected the greater business world by causing the dissolution of the Arthur Andersen accounting company.[2]

Enron’s finance people used a whole slew of “off-balance sheet” accounting practices that allowed the corporation to omit significant liabilities – debts – from their official books and filings. Enron, for sure, went far beyond these legal, if not quite ethical, accounting practices and committed numerous acts of fraud. And, the fact is that “off-balance sheet” financing schemes were all the rage when Enron went down in flames.

“Off-balance sheet” financing schemes were especially popular U.S. colleges and universities as a way to finance new building projects in the absence of significant endowments. It was part of the “public-private partnership” (PPPs) craze of the early 2000s that I discussed above. In a 2010 National Association of College and University Business Officers article assessing the impact of the financial crisis on “off-balance sheet” building projects at colleges and universities, Roger Bruszewski, Sam Jung and Jeffrey Turner note that many colleges and universities entered into PPPs “through the university’s existing foundation, a newly developed university-affiliated foundation, or a collaboration with an unaffiliated national foundation that partners with institutions.” One of “benefits” of this model was that these projects were treated as “off-credit, off-balance sheet transaction[s] that preserved institutional borrowing capacity and balance sheet integrity.” That is, bond rating companies did not consider debt from “off-balance sheet” projects as part of a school’s liabilities. As the authors note, “many of the Pennsylvania State System of Higher Education (PASSHE) schools have continued to utilize this approach.” However good these schemes looked initially, the authors warn:

Over the past several years, however, the off-credit, off-balance sheet transactions have come under considerable scrutiny from lenders, rating agencies, and accounting standards boards because of the direct or indirect ties between the project and institution. Over time developers and universities learned that a project can meet the qualifications to be off-balance sheet and still be included in an institution’s debt profile. These initial on-campus project financings were completed without any developer equity and as 100 percent “project-based” debt. Typically, a not-for-profit entity owned the improvements (subject to a ground lease) and the developer was paid a fee to complete the project. The capital markets determined that because of the absence of equity, the high loan-to-value ratio, the project-based nature of the debt, and the lack of any meaningful developer commitment to the project, an institution was the only logical backstop in the event of trouble. “This ‘moral obligation’ resulted in potentially negative implications for an institution’s debt capacity,” states Bill Bayless, president and chief executive officer at American Campus Communities.

And, it turned out, these warnings bore fruit. In 2012, the bond rating agency Moody’s downgraded PASSHE’s credit rating from Aa2 to Aa3 (click here for explanation of Moody’s ratings) in part because of increasing debt and off-balance sheet projects. Under “Challenges” for PASSHE, Moody’s listed:

High balance sheet leverage from substantial increase in debt since FY 2004, with total pro-forma debt rising to nearly $2.36 billion, driven largely by privatized student housing debt issued for replacement student residences on State System’s university campuses.

Debt structure of member university foundations to fund replacement student housing includes variable rate debt requiring bank support or direct bank placement adding risk of liquidity demands of the foundations’ own modest resources and expectations of PASSHE to step in to fund or assume management or ownership of the housing facility

***

Remember the backdrop we’re all working with here. PASSHE university presidents across the state are screaming about budget shortfalls and the need to make deep cuts to faculty, staff and academic programs – and not just at the universities that are most immediately under the budget ax. The new PASSHE Chancellor, Frank Brogan, had made it clear that the cuts will continue, remarking In October 10 during a media briefing, “Make no doubt about it, retrenchment is here.” And the story from PASSHE’s administration continues to be that the “problem” comes from “rising costs” from faculty and staff salaries – no matter how clear the data is disproving that claim.

In reality, the costs of more than a decade of irresponsible building projects and sketchy oversight will be borne by faculty, staff and students. And, like the Wall Street fraud that led to the Great Recession of 2009, the people who gambled with our money – with the money that we expected to be responsibly invested in our future and the future of our children – will walk away, pointing their fingers at all of us.

This article was originally posted on Raging Chicken Press. I will be posting a series of articles about the incoming chancellor, Frank Brogan, in the upcoming weeks.

Last week the Pennsylvania State System of Higher Education (PASSHE) Board of Governors chose Frank Brogan to become the next Chancellor of the 14 public university system. Brogan is currently the Chancellor of the State University System of Florida. Brogan becomes the third consecutive PASSHE Chancellor to make the 14 plus hour drive from Florida to Pennsylvania. Judy Hample, the former Chancellor of the Florida’s State University System, served as PASSHE Chancellor from 2001 to 2008. From 2008 until this past February, former President of West Florida University, John C. Cavanaugh, became the Chancellor that would preside over the longest faculty contract fight in PASSHE history. This “Florida Connection” has helped usher in an approach to public higher education that favors austerity, privatization, and anti-unionism.

Unlike every previous Chancellor search, this time around the Board of Governors decided to pass a new policy that required members of the chancellor search committee to sign confidentiality agreements. According to the new policy, passed unanimously on January 11, 2013,

Preserving confidentiality in the search for a Chancellor is essential to recruiting and retaining the most qualified candidates. All applications and deliberations about individual applications shall remain wholly confidential until the appointment of a new Chancellor is publicly announced. Each member of the search committee must agree to maintain this confidentiality. The Chancellor Search Committee Chair may at his or her sole discretion remove from the committee who violates confidentiality.

PASSHE’s new policy, ensured that the public, faculty, students, parents, and citizens of the Commonwealth would be denied access to deliberations and a thorough vetting of prospective candidates. After the white smoke rose from the Dixon Center on Wednesday, August 7, PASSHE issued a statement on its webpage introducing Frank Brogan as the next chancellor and explaining the Board’s decision.

“The chancellor search focused on recruiting an “experienced leader who, from day one, can guide the System through the rapidly changing higher education landscape,” Mr. Pichini said. “We were looking for a strong administrator and a transformational leader who will collaborate with traditional and non-traditional stakeholders representing divergent views on what is best for our students and their families.

“Frank Brogan will be that leader.” Mr. Pichini continued. “He has had an impressive record of success throughout his career. He understands the many complexities and challenges facing public higher education and the vital role public universities play both in preparing students for a lifetime of their own success and in ensuring the economic vitality of the state. We are excited about him becoming our next chancellor.”

PASSHE’s official statement, however, serves more as a public relations press release than an in-depth look at who Frank Brogan is and what kind of policy approaches he will bring to Pennsylvania. The more you reread Pichini’s words, the more hollow they ring. How did the Board understand what this “rapidly changing higher education landscape,” is? What exactly constitutes a “strong administrator” and a “transformational leader?” Who are these “traditonal” and “non-traditional” stakeholders? And when Pichini says Brogan has “an impressive record of success throughout his career,” we should pause and ask “success at what?” One can “succeed” in ensuring all students have access to affordable, public education; but, one can also “succeed” in wresting control of education away from educators and handing it over to corporate profiteers, right?

The fact is that students, faculty, staff, parents, and Pennsylvanians deserve better than a closed door, Papal conclave-esque process of decision-making. And yet, here we are. Given that all the “traditional and non-traditional stakeholders” have been prevented from vetting any of the Board’s hand-selected candidates, we’ve got a lot of catching up to do.

If you read any of the media coverage last week, you probably know these basics:

You might have also enjoyed the “Brogan Love” making it into the reporting: “Frank T. Brogan was the first member of his family to go to college. He didn’t blow the opportunity,” reported the Morning Call. “Brogan was a consensus builder who rallied support for the universities and persuaded lawmakers to restore $300 million in reserve funds and increase state support by 6 percent for 2013-14 after years of cuts,” Tom Auxter, President of the United Faculty of Florida, told Pittsburgh’s TribLive. ” “Experienced leader. Visionary. Knowledgeable in dealing with government types. A passion for education. Financially creative. Unquestionable integrity…The board decided … that Frank Brogan … filled that bill,” led the Patriot-News. Most of the reporting, however, fairly accurately reflected PASSHE’s press release. The fact remains that Frank Brogan is a relative unknown for Pennsylvanians. And that should be at the very least concerning given the assault on public, higher education carried out by Gov. Tom Corbett since 2011.

So, who is this guy? And, more importantly, what do we know about the kind of “transformation” he’s got packed in those bags of his?

Key Player in Bringing Vouchers and Charters to Public Education

Long before Brogan became involved with higher education administration, he was one of the strongest proponents of vouchers and privatizing public education – a fact, we should note, that does not appear on his Wikipedia page. In 1995, Brogan was one of the 12 founding members of the Education Leaders Council (ELC). The conservative leaning Washington Times reported at the time that the ELC had an explicit conservative, pro-privatization agenda:

A dozen top state education officials today will announce the formation of an organization oriented toward local control of schools, rigorous academic standards, and parents’ right to choose the schools their children attend.

Six state school chiefs and six state school board members form the nucleus of the Education Leaders Council, a network of largely conservative school leaders who promise to abandon “the status quo and the Washington-always-knows-what’s-best philosophy of education reform.”

Formation of the council, which will be based in Washington and at least temporarily affiliated with the Center for Education Reform, signals a crack in the liberal education lobby that education analysts say is “a delayed reaction” to the 1994 elections that gave Republicans control of Congress.

Two of the state school chiefs spinning off into a new organization have withdrawn from the 87-year-old Council of Chief State School Officers (CCSSO) because it spends their money to lobby against programs they favor. Others may follow suit.

The ELC’s roots as an outgrowth of the pro-privatization, anti-union Center for Education Reform marked a calculated strategy by pro-corporate conservatives to launch an offensive against the American system of public schools with elected officials in the spotlight of a new organization. The ELC seems to have been spawned at a July 29-30 meeting of conservative education administrators at the 1995 National Governors Conference (now the National Governors Association, who were responsible for authoring the “Common Core” for the nation’s public schools). A Center for Education Reform press release dated July 29, 1995, describes the meeting as follows:

Education officials from at least five states will hold a private meeting at this weekend’s National Governors’ Conference to discuss what options are available to them in achieving such education reform measures as standards and assessments, school finance, charter schools and to increase local control.

Some of the issues that are most important to these officials – and to parents in their states – are taboo among education special-interest lobbies…You can’t discuss choice, or charter schools, or even standards, without setting off alarms and inviting heavily funded, and, frankly, some heavy-handed attacks from education unions, lobbies, associations.

At my monthly department meeting yesterday, the department’s representative to our University Senate gave his report on their last meeting. As part of his report, he told us some of the concerns our university president, Javier Cevallos, expressed about a recent drop in enrollment. Cevallos’s remarks before our University Senate echoed a statement he released in October 2012 in order to explain another $3 million shortfall:

Budget Shortfall

This fall semester, Kutztown University is facing a problem of serious magnitude. For the second straight year, the university has experienced a drop in enrollment.

Almost 300 students have made the decision not to come back to KU to continue their education for this fall semester. While we realize many of our sister institutions and private universities within our region are facing the same situation, the drop we are experiencing this year is much larger than we have had in the past.

Upon learning of this, we immediately identified the students and called them to determine their status and/or reasons for not returning. Although we are still evaluating the information we have gathered, it is evident that we need to become more effective at retaining our students.

As I stated at our opening day gathering, each student we lose seriously impacts our budget. With only 20 percent of funding coming from the commonwealth, and with our operating budget based on our year-to-year enrollment, the student body is our lifeblood.

As a result of this enrollment loss, we face a shortfall of $3 million on top of the reductions we have already made. I have decided to cover this gap with carry over funds on a one time basis to meet the deficit in the current year. Although this is only a temporary solution, it will provide us with time to thoughtfully consider base budget reductions, beginning next year, in the context of our mission.

I want to stress the importance of our role in student retention. We all need to go above and beyond to assist our students in persisting and graduating from KU. It is crucial to the future of our university and the region.

I urge you all to put our students first, and do whatever you can to make KU a place they will take great pride in. It is really going to take each and every one of us to help KU overcome this challenge in the future.

This story of “fiscal crisis” has been the norm at Kutztown University for most of the ten years I have worked here. Cevallos’s latest visit to the University Senate was ostensibly, in part at least, to report the university’s findings after gathering information about the reasons why students did not return to Kutztown University. He reported that most of the students who did not return were from Philadelphia and most of those were African-American and Latino students. Not only has the loss of students impacted KU’s budget, Cevallos expressed concern that the loss of these particular students has also hurt the university’s diversity – which has been a focus of his administration as well as a “performance indicator” that figures into the PA State System of Higher Education’s funding formula. Two key reasons Cevallos offered for the decline in enrollment were 1) the possibility that West Chester University – a sister institution located closer to Philadelphia with train service from the city; and, 2) a drop in the amount of financial aid students were receiving. Funding crisis. Diversity crisis. Sister-university-stealing-our-students-crisis.

As readers of the XChange know, this past Thursday, APSCUF members from across the state converged on the Dixon Center in Harrisburg for the October meeting of the PASSHE Board of Governors. APSCUF President Steve Hicks reminded the Board that APSCUF’s offer of binding interest arbitration expires this coming Monday – October 15th. As I reported in a previous post, the day before the Board of Governor’s meeting, the Chancellor’s Office told APSCUF that it was limiting public comments from faculty to three speakers each limited to three minutes. You can listen to the public comments made by APSCUF by clicking the links at the end of this post (I was pleased that my recordings came out so well).

I was thrilled to see over 100 faculty members from 12 of the 14 PASSHE universities represented at the Board of Governors meeting. Kutztown was well represented and many of those who could not make it, sent cardboard Avatars thanks to the creative work of some of our members (you can see all my photos of the event on the APSCUF-KU 411 Facebook page). Our picket before the meeting was serious and lively. When we moved inside to the meeting, APSCUF members packed the hall.

Now, we wait until Monday for the Chancellor’s response to our offer of binding interest arbitration. Next Saturday, October 20th, APSCUF has called a special Legislative Assembly in State College with only one item on the agenda: discussion and vote on strike authorization. Meanwhile, around the state, faculty are doing the practical work of preparing for the possibility that we will be forced to go on strike to preserve the quality of our jobs and the quality of education in PASSHE. We are putting whatever we can in savings. We are sending our off-campus email addresses to our local offices. We are making placards. We are planning actions. We are talking to students. We are talking to our neighbors. We are writing letters. We are visiting the offices of our state legislators. We are getting ready.

At our September Legislative Assembly meeting, I was struck by how different this negotiations felt and how unified the delegates were about the seriousness of the issues we are facing. I felt like I was with like-minded people who saw our current contract fight for what it is: it is a fight to preserve public higher education in Pennsylvania, a fight to preserve our profession. It is a fight for our students, our children and their futures. I felt the same seriousness of purpose in APSCUF members at the Board of Governors meeting.

Below are links to the comments made by APSCUF members at the Board of Governors meeting. They are MP3 files, so they should play on any computer or device.

Last week I launched a new series called “Smashing Apples: Shock Doctrine for Public Education.” The series focuses on the attacks upon public education in PA and across the region and nation. I wanted to let readers of the XChange know for a couple of reasons. First, I am always looking for new writers, photographers, videographers, cartoonists, and podcasters interested in contributing to the site. Given APSCUF’s continuing contract fight, I thought there might be some of you out there who have got some things to say, and who are looking for a place to say it. While our APSCUF-KU efforts are currently focused on letters to editors and to the Board of Governors and Chancellor, Raging Chicken Press might give you a space to contribute in different ways.

Second, I wanted to let you know of some of the articles we have recently published in which you may be interested. Here you go: